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Analysis – Big questions remain as clock ticks on G7 Russian oil price cap

Andrea Charal and Timothy Gardner

Washington, Nov. 4 (Reuters)Officials are rushing to finalize the details, just one month before the seven industrialized nations plan to cap Russia’s oil prices. Traders, shippers and insurance companies are asking about price levels and how they work.

officials from The United States and its G7 allies Seaborne oil shipments will go into effect on December 5th, with a second cap on petroleum products starting on February 5th.

The unprecedented price ceiling would prevent Russia from profiting from soaring oil after it invaded Ukraine on February 24, while ensuring that most of the Russian oil would continue to flow into global energy markets. It is intended to

India and China It is buying up heavily discounted oil from Russia, and G7 officials hope it will happen use Upper limit for price reduction negotiations with Moscow.

Russian President Vladimir Putin says he will halt oil exports to countries enforcing caps, and even if he doesn’t, his threat could help support oil prices .

Here’s what we know and don’t know so far:

Who are the members of the Price Cap Coalition?

Rich G7 nations US, Japan, Germany, UK, France, Italy and Canada have plans, along with the EU and Australia.

Yellen said last month G7 members did not seek to expand the coalition as there were no major suppliers of insurance or oil-related financial services outside the G7.

Britain said Thursday it could ban countries from using its service to transport Russian language oil purchased at a price exceeding cap.

Assistant Secretary for Economic Policy, U.S. Department of the Treasury Ben Harris said on September 9th If China separately negotiates a 30% to 40% discount on Russian oil because of the price cap, “we consider it a win.”

What will be the price cap level?

Government officials and analysts said it would likely take several weeks before a ceiling price level was decided.

One person familiar with the process said: determines the cap This is in line with the historical average of $63-64 per barrel, suggesting a natural upper limit.

Current, Russian oil prices are cheaper than the international Brent benchmark and G7. I want that discount as soon as possible. To curb Russian oil revenues. Still, demanding spreads that are too wide can have the unintended consequence of squeezing global supplybRussia is the world’s second largest oil exporter after Saudi Arabia. This could lead to higher fuel prices for Western consumers.

To prevent this, cParty officials agreed to set fixed price Sources said Thursday when Russia will finalize a price cap for oil later this month, rather than adopting a floating rate.

Consensus on cap levels is achieved with the help of a “Rotation Lead Coordinator”. Ministry of Finance Said.

What is the impact on shipping companies?

The plan calls on participating countries to deny Western-dominated oil transportation services, including insurance, finance, brokerage and navigation to overpriced oil cargoes.

Buyers of oil must state that they have purchased Russian oil below the cap.

The US Treasury said its maritime service providers cannot be held responsible for false pricing information provided by Russian oil buyers and sellers.

G7 officials believe the plan will work because a group of London-based International Protection and Compensation Clubs insures about 95% of the world’s oil fleet.

How can Russia fight back?

Putin has vowed to cut exports to countries participating in the cap, but he also needs oil revenues to fund Russia’s war effort.

Industry sources estimate that 80% to 90% of Russia’s oil could flow outside the cap mechanism using Russian and other non-Western vessels and insurance.

In October, JP Morgan estimated that Russia is shorting tanker capacity for crude oil shipments by about 1 million barrels a day and fuel capacity by 2.5 million barrels. As a result, Moscow may eventually cut production, which will put upward pressure on global oil prices. Prices could rise even as traders fear Putin will halt exports.

Some analysts say Moscow could also withhold oil from Russian assets in other producing countries such as Libya and Iraq.

How are caps enforced?

T.He plans to lack a centralized enforcement mechanism that would leave it up to countries enforcing the cap to apply penalties for purchases over the cap.

The Treasury Department said anyone who falsifies documents or conceals the true origin and price of Russian oil will be punished under the domestic laws of jurisdictions implementing price caps.

The coalition has agreed that price caps will apply through the first land sale of sea-transported oil or when oil is offloaded from ships to tanks on land. this means Brokered deals while oil is at sea must be below the cap, Western sources said on Friday.

Some industry insiders worry Pointing out that tanker owners could be subject to sanctions, The US has no mechanism to determine what due diligence has been done.

Concerns about potential sanctions, even unsubstantiated, are another factor pushing oil prices higher as they cause traders to avoid trading.

(Reporting by Timothy Gardner and Andrea Sharal; additional reporting by David Lawder and the London Energy team; editing by Heather Timmons, David Gaffen, and David Gregorio)

((timothy.gardner@thomsonreuters.com+1 202 380-8348 (Twitter @timogard); Reuters message: timothy.gardner.thomsonreuters.com@reuters.net)))

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

https://www.nasdaq.com/articles/analysis-as-clock-ticks-on-g7s-russia-oil-price-cap-big-questions-remain Analysis – Big questions remain as clock ticks on G7 Russian oil price cap

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